NBR Complete Transcripts-February 7, 2008
Thursday, February 07, 2008Retailers Are Singing The No Consumer Blues
SUSIE GHARIB: Sobering news today from the nation's biggest retailers as consumers cut back on their spending. January sales at U.S. chain stores were among the weakest on record. Wal- Mart sales rose only 0.5 percent, analysts were expecting a gain of 2 percent. Suzanne Pratt reports on why consumers are growing more cautious.
SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: January was supposed to be the month of the gift card, a good time to cash them in and take advantage of post-holiday sales. But, a quick look at the January chain store numbers suggests consumers are cutting back sharply on their spending. UBS analyst Neil Currie says Americans are worried a recession is coming.
NEIL CURRIE, RETAIL ANALYST, UBS: Consumer confidence is low with the housing market being under pressure and unemployment numbers going up. People reading the headlines, they're feeling pinched.
PRATT: The world's largest retailer blamed its sales shortfall on nasty weather in the Midwest. But UBS' Currie, whose firm does business with Wal-Mart, also noted that its shoppers are using gift cards for necessities.
CURRIE: Auntie Mable may have given you a gift card to go and buy a sweater, but instead they're going to buy their cereals and whatever else it may be for daily purchases.
PRATT: Weak sales plagued everything from department stores like JC Penny to specialty retailers like Limited and Hot Topic. Warehouse stores, BJ's and Costco rang up some of the few positive surprises. And, it was a mixed bag for high-end retailers, with Saks beating expectations and Nordstrom falling far short. Luxury has held up reasonably well given the uncertain economy. But, Bear Stearns analyst Christine Augustine says demand for things like pricey handbags is slipping.
CHRISTINE AUGUSTINE, RETAIL ANALYST, BEAR STEARNS: Really I think it's mainly that consumer who is more aspirational, who kind of traded up, because they were able to take value out of their home and so they kind of were able to shop beyond their means, so that's where we're seeing a softening.
PRATT: Augustine says core luxury customers are still spending and that's what Gucci is counting on. Tomorrow, Gucci will open a glitzy new store on New York's Fifth Avenue, its largest in the world. CEO Mark Lee says if U.S. sales falter, other markets will pick up the slack.
MARK LEE, CEO & PRES., GUCCI: This long established balance between Europe, American, Asia typically is something that helps us when we face difficulties in one region or another.
PRATT: Analysts predict the weakness in chain store sales will continue in the coming months. Not only are consumers coping with an economic downturn, but Easter comes early this year, so early that people are less likely to spend for new spring clothes. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.
S&P President Deven Sharma Explains New Evaluation Actions
SUSIE GHARIB: Standard & Poor's announced today big changes in how it evaluates financial products. The ratings agency says improving four key areas will better serve the public. It wants beefed up governance establishing a watchdog to ensure the integrity of the ratings process. Better analytics will also play a role enhancing the quality of its ratings analysis and opinions. The firm will provide more and better information to the public, clarifying the level of risk in an investment. And it wants to better educate market players about what a credit rating is and is not. Critics say the reform doesn't go far enough; one even called it window dressing. Erika Miller sat down with S&P's President Deven Sharma today and began by asking him what prompted the agency to make these changes.
DEVEN SHARMA, PRESIDENT, STANDARD & POOR'S: S&P is announcing a number of actions today because we believe we can bring more transparency to the marketplace. And with more transparency, we believe it will bolster the confidence of the credit and capital markets and investors.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Are these changes a direct response to criticism that S&P has been asleep at the wheel, slow to spot trouble, slow to react to it?
SHARMA: We went and talked to a number of market participants, investors, other issuers. We went to the regulators, central banks, treasuries around the world and got a lot of input from a number of people and came up with this set of actions because we believe these actions are important in bolstering confidence in the marketplace but providing more transparency. We believe it is the right thing to do for the marketplace and the right thing for us to do for the business.
MILLER: Are these changes substantive or is this just window dressing to try and placate regulators in the U.S. and in Europe who are very critical of what's happened?
SHARMA: These actions are very meaningful. And if I might just take one or two examples to show you the depth of these actions. For example, there have been questions about perceptions around the independence of our issuer-paid model. And so an example, one of the things we want to put into policy is analyst rotation. That every five years we are going to rotate our analysts so that there is no question that long-term relationships sometimes build up and people become easy (ph).
MILLER: How do today's changes address conflict of interest allegations that S&P analysts are too close to the companies that they rate?
SHARMA: We have a number of very stringent practices and policies around maintaining independence. One of the things we're going to do is make it transparent to the public by having an external firm, like an external audit firm come and take a look at us, review us, and show that our practices and our policies and our independence are working and then we will make the results of the review public.
MILLER: But analysts will still rely solely on information provided by the company that's paying them to rate the securities that they are looking at, right? They are not going to be relying on their own opinions of what might happen and risks that others are bringing up in the marketplace?
SHARMA: The analysts take the data from the company because they have to provide the data on their particular issuance. Secondly then they will look at a lot of benchmarks. And these benchmarks are built up based on a historical data and the market-based data. And then they look at a lot of what is going on in the market environment and market conditions. So they take these three or four data points and then apply their judgment and expertise to come up with the answer.
MILLER: Will it be harder to get a AAA rating? Will it be easier to lose one?
SHARMA: It will be as hard as it always was. And it will be as easy as it was to lose the ratings. We've always made rating changes based on the best available information we have. So when the information changes, we take action on it.
MILLER: Do you think investors have a misperception about what a bond rating is and how they should be using it to evaluate various securities?
SHARMA: I think the investors inferred more from the ratings than it was designed for. The ratings is designed to address probability of default. And perhaps the investors had begun to infer that it would give them also information on market risk factors. And so by education program, we will hopefully investors will better understand what a ratings means and when to use the ratings.
MILLER: Mr. Sharma, thank you very much.
SHARMA: Thank you.
Fannie Mae & Freddie Mac 's Plan To Ease The Housing Crisis
JEFF YASTINE: Another sign of weakness in the housing market, the National Association of Realtors said pending home sales in December fell to the second lowest level on record. Some lawmakers now want key mortgage players Fannie Mae and Freddie Mac to help shore things up. But as Stephanie Dhue explains, on Capitol Hill today, there is another question: who will keep tabs on Fannie and Freddie? STEPHANIE DHUE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Lawmakers want Fannie Mae and Freddie Mac to be able to buy so-called jumbo mortgages of up to $735,000, a nearly 75 percent increase over current limits. Senate Banking Committee Chairman Chris Dodd says that change is important given the housing crisis.
SEN. CHRIS DODD (D) CONNECTICUT: We've got a major, major problem in our country and it's global, in effect, and we've got to act, I hear, and one of the things you've got to do is not just stimulate spending, but you need to address the underlying issue and that's housing and foreclosures. And by getting more liquidity in the market by raising these loan limits, I think helps in that regard.
DHUE: Fannie Mae and Freddie Mac buy home loans from banks and other lenders, then bundle them into securities. Together they now hold or guarantee nearly $5 trillion in mortgage debt. Republicans on the banking committee are leery about increasing that amount. Senator Mel Martinez says lifting the loan limits may prove unwise over the long term.
SEN. MEL MARTINEZ (R) FLORIDA: How is it that we are to feel more comfortable and more confident that the taxpayers of America are not at greater risk by increasing the conforming loan limits of Fannie and Freddie without a corresponding stronger regulator?
DHUE: Since the 2003 accounting scandals at Freddie Mac and Fannie Mae, lawmakers have been battling over just how to strengthen their regulator. Now increases in the loan limits have given the issue more urgency. James Lockhart heads the office that now the regulates Fannie Mae and Freddie Mac. He is urging Congress to beef it up.
JAMES LOCKHART, DIR, OFFICE OF HOUSING ENTERPRISE OVERSIGHT: I think it's critical that we have all the powers of a strong regulator not only to make sure they do this properly but to make sure everybody else believes that they can do it properly.
DHUE: Lockhart says it will take one to three months after legislation is passed before Fannie and Freddie can begin to securitize jumbo loans. Stephanie Dhue, NIGHTLY BUSINESS REPORT, Washington.
"The Future of Television" - Cutting-Edge Technology
SUSIE GHARIB: Another step today in the nation's switch from analog to digital television. At a Best Buy store in Washington DC this morning, officials from the Federal Communications Commission showed off the new digital converter boxes, which go on sale in 10 days. The boxes will let viewers with stand-alone analog sets that rely on over the air transmissions, receive digital signals next year. The government is offering a $40 rebate coupon to help defray the cost of buying the box.
Those converter boxes will be key next February, when the main part of the analog to digital switch takes place. This week we're looking at the changing nature of the broadcasting industry. Tonight, as we wrap up our series "The Future of Television," New York bureau chief Scott Gurvey looks at how new video technology is changing more than just TV.
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The conversion of broadcast television from analog to digital is scheduled for completion on February 17 of next year. Federal Communications Commission Chairman Kevin Martin says it is important that policy makers insure everyone is ready.
KEVIN MARTIN, CHAIRMAN, FEDERAL COMMUNICATIONS COMMISSION: I think it's going to be both an interesting and a challenging time to make sure that the broadcasters have done all that they can to prepared for that DTV transition and that consumers are aware of it and are doing all that they need to do to make certain that they are still able to be receiving their television signals.
GURVEY: But as Martin explains, the digital conversion offers opportunities for a television future well beyond better pictures and sound.
MARTIN: Some of the other changes that we're talking about really are going to be even more significant from the consumer perspective in the long run. Like I said, the ability that consumers are going to be able to have to be able to watch their videos and whatever video they want and wherever they want it and whenever they want it is going to be even more transforming.
GURVEY: HBO already distributes its mix of theatrical and original movies and series on multiple channels and through video on demand. HBO is also testing TV on mobile devices, but executive David Baldwin says that is not ready for prime time.
DAVID BALDWIN, EX VP, PROGRAM PLANNING HBO/CINEMAX: I think the thing that has held us back in cell phones (ph) domestically obviously is that the networks are not built yet. But when they have it, of course, I mean, television will be everywhere, all the time, for everyone.
GURVEY: The future of television is also interactive, perhaps employing technologies now found on alternate reality web sites like Second Life. In this model, the audience will play an active role. Comcast VP Charles Cerino says his network is already capable of providing the technology creators need for interactive content.
CHARLES CERINO, VP NEW MEDIA, COMCAST: All our digital devices are two way, so you're constantly interacting even if you don't realize you're doing that. And obviously our high speed data product is two way and our digital phones are two way, so you know the fiber optic technology that came along in the nineties was readily adopted by the cable industry.
GURVEY: Some predict we will, one day, cast our votes through interactive television. That seems far off but the video cameras found in many mobile phones are already having an impact on politics. Anything a candidate says is now likely to be recorded and quickly posted to a video sharing site. Politicians can run, but they cannot hide. The number of television channels carrying news and information has grown along with the number of channels in general. Interestingly, Princeton Professor Marcus Prior, author of a study titled "Post-Broadcast Democracy", says this is making news junkies more involved, but moderates less.
MARKUS PRIOR, AUTHOR, POST-BROADCAST DEMOCRACY: Those are exactly the people who don't care very much about the news, who don't care very much about politics. So they become less informed because of all this choice. They do other things.
GURVEY: Television has always evolved with the technology. Color followed black and white. Cable and satellite added channels and the concept of pay TV. Now digital improves quality and adds mobility. Al Lieberman of NYU says the term television may be obsolete, but the basic model of creating and delivering content, remains.
AL LIEBERMAN, PROFESSOR, NYU STERN SCHOOL OF BUSINESS: It's a very exciting time for people to be in the media business, specifically, all of these aspects of television. And I say all of these aspects because in a way television soon will become kind of an antique word, a descriptive. And it's really going to be content delivery, I think. And even that sounds too fancy. It's anyway that you can watch the programming.
GURVEY: And it is any way you can make the programming. Take a software product called Visual Communicator from Adobe, put on a mid-range Dell computer, add a web-cam from Logitech and you get yourself a powerful do-it-yourself studio for about $1,500. Is this the future of television? Not totally. But it is a growing part of the video revolution. Come on and join the fun. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.
"Commentary"-Risk Management
SUSIE GHARIB: Tonight's commentator has listened to all the chatter about risk in the credit markets these days. He says something's missing from the discussion. Here's Tom Stewart, editor of the "Harvard Business Review."
TOM STEWART, EDITOR, HARVARD BUSINESS REVIEW: The World Economic Forum in Davos the week before last was full of talk about risk. How couldn't it be, after months when supposedly safe financial instruments turned out to be full of nasty surprises, like the old snake in a can practical joke, only these weren't funny. And coming also in a week when markets plunged and the Fed jumped, when we learned there been another snake in a can, the actions of Societe General to undo trades by an allegedly rogue employee and that wasn't funny either.
No wonder all Davos was talking about risk, global frameworks and transparency. Jamie Dimon, the CEO of JPMorgan, brought the issue down to earth. He said, there's a management issue. Companies need to grow, but in a risk business, he said, the easiest way to grow is to leverage up. Now, all growth entails risk and often leverage in the form of debt. But financial companies -- risk companies -- have the special temptation to leverage up five- and 10-fold and to do it fast, something that's true of no other kind of business except start-ups.
No wonder they're regulated, then. And perhaps recently we've lost sight of the basis of sound regulation. As Robert Shiller, the Yale economist, told me, the best regulatory bodies, like the SEC and the FDIC have their roots in protecting consumers. That's been missing in the talk about what went wrong in sub-prime lending. An attitude of consumer protection, for mortgage borrowers and the buyers of mortgage securities, might have saved us from some nasty surprises. I'm Tom Stewart.
"Last Word"-Rat Revelry
SUSIE GHARIB: And finally tonight, kung hay fat choy (ph). That means wishing you prosperity in Catonese, a traditional lunar New Year greeting in China. Today kicks off the year of the rat, the first of a dozen animals in the 12-year cycle of the Chinese zodiac. But don't think that the rat's a bad omen. In fact, it's a good one. In Chinese mythology, rats are seen as hard-working, productive animals. People born under that sign are said to be ambitious, inventive and charming. And Jeff, they're also seen as being able to amass great wealth, because they have an eye for a bargain.
YASTINE: I guess we're all rats then when we head to the stores looking for deals, right.
GHARIB: A new sense of a rat race.
Paul Kangas' Stocks in the News
JEFF YASTINE: Investors looked past the retail sales disappointments and focused on growth and valuations today. The Dow's early 70 point loss was quickly erased as buyers bought shares of Wal-Mart, Coke and other steady growers. Same for the NASDAQ where Cisco Systems saw a 1 percent rebound despite its cautious sales outlook we told you about last night. The Dow advanced 130 points in the afternoon before selling whittled down those gains. So the blue chips closed up 46.9 at 12,247. The NASDAQ Composite advancing 14.28 to end at 2293.03 and the S&P 500 adding 10.46 to finish at 1336.91. In the bond market, a (INAUDIBLE) $9 billion auction of 30-year bonds the worst in four years and profit taking kept Treasuries weak, the 10-year falling 1 12/32 to 97 24/32 and driving the yield up to 3.77 percent.
Citigroup (C) starting our list off tonight, falling $0.22.
And then Ford Motor Co (F) dropping $0.14.
Hewlett-Packard (HPQ) off $1.66. That company slated to report quarterly results on the 19th of the month.
Bank of America (BAC) bouncing back $1.04. The firm is boosting the interest rate it charges credit card customers in an effort to help boost revenues and the banking giant also revealing today that it now owns a 7 percent stake in the bond insurer, Ambac Financial.
And General Electric (GE) rising a fraction.
JPMorgan Chase (JPM) gaining $1.39. CEO Jamie Diamond sees the sub- prime and credit market crisis winding down and thinks it might be time to start looking at the distressed debt of some of the more troubled companies.
EMC Corp (EMC) dropping $0.20.
Wal-Mart Stores (WMT) gaining $1.01. Slow gift card redemptions as we told you a moment ago hurting its January sales numbers, but investors looking for values today. They found it with Wal-Mart.
Qwest Communications (Q) down $0.28.
Pfizer (PFE) rising a fraction.
JC Penney Co (JCP) rising nearly $4. The decline in January sales not as bad as investors feared, about 1.9 percent and Penney's thinks they can still meet their fourth quarter forecast.
Saks (SKS) gaining $1.42. This upscale retailer logging a 4 percent gain in same store sales last month.
And Family Dollar Stores (FDO) benefiting as well. They perked up more than $2 after sales declines were smaller than expected.
Airlines getting a lift from continued talk of industry consolidation. Continental Air (CAL) climbing $1.67 with published reports saying merger talks are heating up with United Airlines parent UAL climbing $1.88.
Pepsico (PEP) advancing more than $3, more than $3.50 by the way. The stock bouncing off a six-month low on belief the soft drink maker will be able to meet its profit projections this year.
Then Gartner (IT) gaining nearly $2.50. Its profits rose 72 percent in the fourth quarter.
Intercontinental Exchange (ICL) jumping more than $14. All the exchange stocks doing quite well today. JPMorgan called the shares on Intercontinental a compelling value and downplayed the antitrust concerns raised yesterday by the Justice Department about the trade clearing (ph) operations at the major futures exchanges. CME shares by the way advancing more than $42.
Aetna (AET) dropping $1.32 Profits there rising a modest 3 percent and enrollment forecasts were raised, but investors disappointed that the executives didn't boost their earnings guidance at the same time.
Prudential Financial (PRU) dropping more than $6. Fourth quarter earnings falling and 2008 forecast were revised lower as well.
On the NASDAQ, Apple (AAPL) dropping $0.76.
Cisco Systems (CSCO) rising $0.30 despite the company's disappointing sales forecast last night.
Microsoft (MSFT) dropping $0.40.
Google (GOOG) rising more than $3. They'll be showing their so-called G phone mobile device to journalists at a conference in Spain next week.
And Research in Motion (RIMM) advancing $0.85. Cisco, excuse me, Citigroup sees RIMM's popularity in the U.S. being a big problem if the economy slips into recession.
baidu.com (BIDU) rebounding more than $2.
Intel (INTC) advancing $0.13.
First Solar (FSLR) though dropping $6.
Yahoo! (YHOO) rising $0.47.
And Qualcomm (QCOM) advancing $1.29.
Akamai Tech (AKAM) rising more than $2. They report strong earnings of $0.41 a share. That beat estimates.
And then Corporate Executive Board (EXBO) tumbling almost $12. They missed their earnings targets for the fourth quarter and see lower than expected profits for all of 2008 as well.
And those are our stocks in the news tonight.
